Overpayments and early repayment charges

beefturnmail

I'm thinking about taking a 5 year fix with Nationwide.  If I overpay the maximum amount each year without incurring an ERC (and opt to keep monthly payments the same), I calculate that the mortgage will be cleared after about 3.5 years.   Would I then incur some sort of charge for clearing the mortgage before the 5 year fix period has elapsed?  If not what would then happen to the standard monthly repayments?

Also if I opt to keep the standard monthly repayments the same after an overpayment, I'm presuming the difference between the old monthly repayment and the amount the monthly repayment would have reduced to, does not itself count as an overpayment? (when determining the amount I can overpay without incurring an ERC)

Thanks!

Mark_d

If you repay the mortgage in full before the 5 year fix period then you need to pay an early repayment charge.

Exodi

Mark_d said:

If you repay the mortgage in full before the 5 year fix period then you need to pay an early repayment charge.

Did you even read the OP?

beefturnmail said:

I'm thinking about taking a 5 year fix with Nationwide.  If I overpay the maximum amount each year without incurring an ERC (and opt to keep monthly payments the same), I calculate that the mortgage will be cleared after about 3.5 years.   Would I then incur some sort of charge for clearing the mortgage before the 5 year fix period has elapsed?  If not what would then happen to the standard monthly repayments?

Also if I opt to keep the standard monthly repayments the same after an overpayment, I'm presuming the difference between the old monthly repayment and the amount the monthly repayment would have reduced to, does not itself count as an overpayment? (when determining the amount I can overpay without incurring an ERC)

Thanks!

No there's no ERC if overpayments are within the overpayment allowance.

If you let the DD run for the final period, it will calculate the final payment including interest and leave you with a zero balance, after which no more DD's should be taken. At worse they'll take one and reimburse it.

On your second question, maintaining the same monthly payment doesn't count as an overpayment if you have set up overpayments to be used to reduce the term. On the phone app go to products tab > mortgages > manage your mortgage online. Here you can change what overpayments are used for (manage overpayments)

You may be charged a 'mortgage exit fee' aka 'redemption fee' of £65 IIRC if you have more than 10 years left on the term. But rather than hypothesizing, definitely worth a quick call to Nationwide to ask for your redemption figure.

Hoenir

beefturnmail said:

Also if I opt to keep the standard monthly repayments the same after an overpayment, I'm presuming the difference between the old monthly repayment and the amount the monthly repayment would have reduced to, does not itself count as an overpayment? (when determining the amount I can overpay without incurring an ERC)

There's been instances in the past where ERC's have been charged by lenders. With borrowers struggling to understand why. A payment is a payment. The very nature of an additional payment causes the future interest charged to reduce and the capital balance to reduce correspondingly.  

saajan_12

The premise itself seems strange - what are the numbers involved ie starting mortgage size, starting mortgage term, current balance, allowed overpayment, etc. Usually with a 10% repayment allowed even if that's based on the starting not reducing balance, you'd only repay 50% plus the usual repayments within 5 years. 

beefturnmail

saajan_12 said:

The premise itself seems strange - what are the numbers involved ie starting mortgage size, starting mortgage term, current balance, allowed overpayment, etc. Usually with a 10% repayment allowed even if that's based on the starting not reducing balance, you'd only repay 50% plus the usual repayments within 5 years. 

It's a mortgage transfer from an existing Nationwide Mortgage.  Overpayment allowed without ERC is 10% of the original starting mortgage balance (which started some years ago), hence why full repayment will be less than 5 years, with maximum overpayment.

Hoenir

Make the maximum permissable overpayment then have the monthly payments revised accordingly. The outcome will be achieved without breaching any limits. 

amnblog

beefturnmail said:

saajan_12 said:

The premise itself seems strange - what are the numbers involved ie starting mortgage size, starting mortgage term, current balance, allowed overpayment, etc. Usually with a 10% repayment allowed even if that's based on the starting not reducing balance, you'd only repay 50% plus the usual repayments within 5 years. 

It's a mortgage transfer from an existing Nationwide Mortgage.  Overpayment allowed without ERC is 10% of the original starting mortgage balance (which started some years ago), hence why full repayment will be less than 5 years, with maximum overpayment.

Presumably, you have changed rate since you first took the mortgage? When a new rate switch occurs, the 10% overpayment allowance is reset

Exodi

amnblog said:

beefturnmail said:

saajan_12 said:

The premise itself seems strange - what are the numbers involved ie starting mortgage size, starting mortgage term, current balance, allowed overpayment, etc. Usually with a 10% repayment allowed even if that's based on the starting not reducing balance, you'd only repay 50% plus the usual repayments within 5 years. 

It's a mortgage transfer from an existing Nationwide Mortgage.  Overpayment allowed without ERC is 10% of the original starting mortgage balance (which started some years ago), hence why full repayment will be less than 5 years, with maximum overpayment.

Presumably, you have changed rate since you first took the mortgage? When a new rate switch occurs, the 10% overpayment allowance is reset

To add to this, you can also check current overpayment allowance and usage on the overpayment section as above:

Exodi said:
On the phone app go to products tab > mortgages > manage your mortgage online. Here you can change what overpayments are used for (manage overpayments)

Exodi

saajan_12 said:

The premise itself seems strange - what are the numbers involved ie starting mortgage size, starting mortgage term, current balance, allowed overpayment, etc. Usually with a 10% repayment allowed even if that's based on the starting not reducing balance, you'd only repay 50% plus the usual repayments within 5 years. 

Nothing strange at all, I don't think you've fully processed that overpayment allowance is based on original balance.

If you took out a mortgage for £250k with a 25 year term with an average rate of 3%, and you were say 15 years through it today (so you have £123k-ish left on the balance), you could still chunk off £25k a year in overpayments on top of your monthly payment. Instead of 10 years left on your mortgage, doing this would see your mortgage paid off in 3 and a bit years, similar to the OP.

Not odd, though it does require finding a significant pot of cash to pay down 10% of the original balance every year (commonly the case after an inheritance, as a way to avoid paying a big ERC bill).

beefturnmail

amnblog said:

beefturnmail said:

saajan_12 said:

The premise itself seems strange - what are the numbers involved ie starting mortgage size, starting mortgage term, current balance, allowed overpayment, etc. Usually with a 10% repayment allowed even if that's based on the starting not reducing balance, you'd only repay 50% plus the usual repayments within 5 years. 

It's a mortgage transfer from an existing Nationwide Mortgage.  Overpayment allowed without ERC is 10% of the original starting mortgage balance (which started some years ago), hence why full repayment will be less than 5 years, with maximum overpayment.

Presumably, you have changed rate since you first took the mortgage? When a new rate switch occurs, the 10% overpayment allowance is reset

I thought so too, but when I go in to the 'switch my mortgage' area through nationwide's manage my mortgage, it presents my with various options, some fixed, some trackers etc. - under more details the trackers say no overpayment limit and the fixed ones say 10% of the original mortgage amount and then give a figure based on that.   Maybe this will change once I actually proceed with the mortgage however?